Were the charges material?
Materiality was to be tested at the date of placement.
The court had to take into account all of the points that BAWL would have made had they appreciated they had a duty to disclose.
The Judge also accepted that, on analysis, it was not necessary for the Malaysian prosecutors to allege that Mr Sherwood was guilty of deceit or dishonesty. He also found there was no deceit or dishonesty on his part.
It was necessary to consider the matter from the point of view of a reasonable insurer at the time the decision (whether to accept the risk) was made if all relevant circumstances had been disclosed.
The Judge held they were material.
He accepted that AXA were not in a position to determine whether or not the allegations were entirely unconnected to any allegations of personal wrongdoing. Nor were they bound simply to accept the assertions made on behalf of BAWL.
It was important to recognise that AXA could not be expected at that time to resolve the issue of whether the charges against Mr Sherwood did or did not involve allegations of deceit or dishonesty. They were not under an obligation to BAWL to carry out a detailed check into, or analysis of, the nature of those charges.
Importantly he held that facts raising doubt as to the risk are sufficient to be material.
As to inducement, the 2015 Act provides:
“… The insurer has a remedy against the insured for a breach of the duty of fair presentation only if the insurer shows that, but for the breach, the insurer—
(a) would not have entered into the contract of insurance at all,
(b) would have done so only on different terms ...”
Inducement too is a question of fact.
It was common ground that AXA’s branch office had no authority to write the risk under its Practice Note. If the charges had been disclosed to them and the exculpatory matters upon which BAWL relied had been referred to London, the Judge was satisfied that AXA would have declined the risk, as they did when it was in fact referred to them.
The Judge also found that the fact that other underwriters were prepared to cover Mr Sherwood following disclosure of the charges to them was not of assistance in his consideration of the issues in this case. The insurance policies were different in nature from the policy under consideration here. He was concerned with AXA’s conduct in relation to the cover which they provided.
The Court of Appeal confirmed that the Judge applied the correct test, by reference to the position at the time and had the evidence to support his conclusions. The fact that AXA subsequently declined coverage was no more than confirmation for this decision.
This is a sensible decision which reflects the commercial realities of insurance, namely underwriters are not expected to carry out a detailed check into, or analysis of, the nature of complex charges or have to analyse whether they give rise to moral hazard.
Instead, it is clear that facts raising doubt as to the risk are sufficient to be material.
Before making any decision, it is crucial that underwriters should take into account all evidence which was or would have been available to the insured at the time of placing the insurance. However, they are not bound simply to accept the assertions made on behalf of an insured.
Therefore, it is important that insurers take time to obtain and consider such information before making a final decision.
The decision highlights the importance of having underwriting procedures in place to support any decision. Also a timely reminder to brokers and insureds of the need to ensure full disclosure of any charges or convictions.